Failure?

EXAMINER: No Second Stimulus, Please. “Be sure to thank the President and Congress. This week, with news of some 467,000 jobs lost in June, the Bureau of Labor Statistics estimates that the U.S. has now lost about two million jobs since the economic stimulus package passed. Even more notable is that the average workweek has been slashed to 33 hours - the lowest number on record. When the President signed his $787 billion stimulus package into law, he confidently asserted that unemployment would not exceed eight percent. If Congress hadn’t passed it, he warned, it would rise to nine percent by 2010. Well, unemployment reached 9.5 percent last month, meaning, by the President’s own logic, that his stimulus package has failed.”

Posted at 2:26 pm by Glenn Reynolds

Failed? Well, that depends on what you think "the President's own logic" was. I think the stimulus package was, from the start, primarily a mechanism to put a plethora of government programs into place, get them entrenched, and establish those precedents. In that respect it has been a success. In all other respects it's a predictable failure that, worse, will leave behind a permanent, toxic legacy.

When the Obster finally tanks, he's going down hard, and on multiple fronts. And if you read even slightly between the lines of recent news stories, one thing is clear: The Clintons have no intention of going down with that ship. They will not be the only ones scuttling down the ropes to reach the dock.

Obie needs to get incredibly lucky on the economy (in about six different ways), on Iraq, Afghanistan, and Pakistan, and more besides. The chances of that kind of luck are approximately zero. He got his whole domestic wish list enacted (except his health care plan, which is DOA), so blame will be hard to off-load onto others. The best you can say about his foreign/security policy is that it's probably well-intentioned and might even work on some planet other than Earth.

Righty conservatives found it much easier to be out of power than in power, now lefty liberals are discovering the same thing. This is setting up to be a crash-and-burn of historic proportions. The sycophant, cheerleader media are annoying, but their blither will be of no consequence from here forward. The commitments are made, the direction set, and what happens now will happen in full view.

Byron

Obama, Orwell, and Burgess

Obama is personally very popular, but people who look at him with skepticism worry about his plans and programs. If those are wrong-headed, then his popularity becomes problematic and even dangerous. That sort of concern tends to be dismissed because is so often expressed in terms of an abhorrence of socialism and fears about the loss of liberty, which sounds like yet another repetition of a tiresome line of right-wing cant. Everybody understands how liberty is lost through fascist oppression, but to many people it's not so obvious how liberty can be lost through expansion of benefits provided by an ever more caring government.

George Orwell's dystopian novel "1984" portrayed life in an England that had become thoroughly fascist and oppressive -- constant surveillance, and plenty of Big Brother's jack-booted thugs around to make sure nobody stepped out of line. Orwell had experienced Stalin's tactics first-hand when he fought, and was nearly killed, as a member of a leftist brigade for the Republican side in the Spanish Civil War, a story told in his book, "Homage to Catalonia." As a result, unlike many artists, writers, and intellectuals of the time, he had no illusions about what communism meant in practice, and "1984" was his attempt to convey that vision.

But Anthony Burgess, another highly esteemed British writer ("A Clockwork Orange" and much else) argued that as fine and effective a book as "1984" might be, Orwell had got it wrong. Orwell's version of future events was correct in portraying the loss of liberty, but it was not correct about how that would happen. Burgess's reply to Orwell is found in his novel, "1985." That book is not nearly so well known as Orwell's, but it is a very good book on its own. Here is the argument its story makes:

It is true that liberty can be lost through brute, fascistic force, no doubt about it. (North Korea remains as a reminder of what that kind of society looks like. North Korea is, in a word, Orwellian.) But liberty will not be lost to oppressive force permanently. The loss of liberty to oppressive force is always temporary, because oppression always provokes reaction and resistance, as a matter of
human nature. Eventually, the costs of the surveillance and discipline necessary to keep everyone in line become too high, and resistance succeeds.

According to Burgess, the loss of liberty will not come from the oppressive Right, but rather from the benevolent Left. In "1985," people had progressively and voluntarily traded away their liberties in return for government benefits. The villains for Burgess in that swap were the labor unions, a predictable view for a Brit writing in the 1970s. He saw the unions gaining unrivaled political power, and
using that power to expand government into every aspect of what had once been private life. They gained political power by promising an endless expansion of free benefits, to be paid for by the rich, or through greater efficiency, or whatever else can be pulled out of the Left's grab bag of fantasies.

The unions are not such a major force in this country, but the arguments are the same, here carried forward by those who call themselves "progressives." Obama is about to present his ideas for a massive, and massively expensive, expansion of the government role in health insurance. He will promise that it will not entail a financial burden on "working families." We will all be better off, and the costs will be borne by others. Obama does not seem impressed by the challenge to first show how it would work by using it to fix the sucking maw that is Medicare. No, he thinks we need to start with the Full Monty. He's a man in a hurry, and it will all no doubt sound plausible to those who badly want it to be true. But no country in the world has come close to devising a government program that can contain health care costs, even with draconian rationing, and we won't, either. As the economy is crippled by an explosion of costs (go back and look at the original estimates for the costs of Medicare; they're hilarious), more government intervention will be
required on all fronts.

My conclusion and prediction from all this is that Burgess was right. A program of progressive expansion of benefits, supposedly to be paid for by somebody else, does not provoke reaction and resistance; it provokes willing, grateful acceptance. That, not Orwell's nightmare, is the path to permanent loss of liberty. Thank you, Obama. Thank you, Big Brother.

Byron

Quality of toxic assets

There has been some optimism that the mortgage assets held by the banks may not be as bad as they are made out to be. That would be a great plus for the bank rescue package that Geithner is, finally, going to unveil in the next few days, because his plan will try to find buyers for those assets. If willing buyers come forward, even with the large government subsidies that the plan makes available, that will at least establish market prices for assets that have been sitting there frozen. Once these assets are priced, the financial condition of the banks that hold them will become known, and presumably the assets themselves will attract enough buyers to get them off the banks' books.

But so far no one has any good idea just how bad those loans are.

Here is an examination by Fitch, one of the rating agencies, of a small sample of subprime loans ; it is quite discouraging. For example, 69% of the loans were made with "Low/No Documents" -- proof of income, credit history, etc. "There was the appearance of fraud or misrepresentation in almost every file." If this sample is at all representative, these assets really are of extremely low quality (see the table of problems on pp. 4-5). That would mean that they will be bought only very deep discounts, and most of that will be taxpayer money.

Byron

Horse, barn door

Madoff's accountant charged with fraud as prosecutors begin going after his associates

Yeah, wow, big deal. Not.

The overriding fact is that the flaming, flailing fraud that was the Madoff operation was allowed to continue year after year after year. This schmuck Friehling alone kept the phony books for -- count 'em -- 17 years, and his father-in-law before that!

The issue is why the SEC did not launch a full-bore investigation years ago of this mathematically impossible nonsense. Fraud audit teams should have been rappelling from helicopters onto the Madoff roof at least a decade ago. Instead, the SEC sat on its hands, even in the face of multiple, recurrent demands for investigation, including specific allegations that it was a Ponzi scheme.

Is there no such thing as nonfeasance by a government agency? A private organization would be looking down the barrels of the Mother of All Negligence Suits. That's the scandal, and it's not going to be allayed now, at this preposterously, pathetically late date, by rounding up any number of 32-year-old accountants that Bernie corrupted.

Byron

Land of Oz

Obama talks about trillions in spending or debt as if it doesn't really amount to all that much. Some studies have found that for many people all numbers over about 1,000 are pretty much the same, just great big numbers. Maybe Obama is one of those people, so here's some help in the form of an illustration given by Ronald Reagan:


If you had a stack of $1,000 bills 4 inches high, you'd have a million dollars.

To have trillion dollars, you'd need a stack over 63 MILES high.

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(Can that be true? Yes:

A trillion (1,000,000,000,000) is a million million (1,000,000 x 1,000,000).

If a 4-inch stack is a million dollars, then a trillion dollars is a stack a million times that tall.

4,000,000 inches / 12 = 333,333 feet

333,333 feet / 5280 = 63.131 miles)

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Obama's $3.6 trillion 2009 budget projects a deficit of $1.75 trillion dollars.

So he will spend a stack of $1,000 bills over 227 miles high, and leave a deficit over 110 miles high.

Don't forget that municipalities and states have their own budgets -- and their own deficits to pile on top of the Federal one.

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Obama is a guy with zero executive or business experience; he never ran so much as a church bake sale before ascending to the Presidency. What he is, above all, is full of himself, with a level of self-regard that's frankly bizarre. His preternatural self-confidence borders on the pathological, because there is no background of difficult, hard-won accomplishment to justify it. Above all, he has no history of chastening experience, and people like that are always dangerous for their lack of any sense of limitation or perspective. Obama is a Greek tragedy waiting to happen, and we are all along for the ride.

So, here we are, in the Land of Oz, with an untested, ego-maniac naif behind the curtain merrily pulling the levers of the preeminent military and economic power on the planet. This country, the world's oldest constitutional democracy, is a patrimony built over centuries of untold effort and sacrifice, but it won't take nearly that long in the other direction.

You get what you ask for at the ballot box, and it looks like we, and our children and grandchildren, are going to get it good and hard. Neither the markets nor our foreign adversaries care one whit about nicely delivered speeches, and they will not share in our delusions.

Byron

Home Values

Sob stories about the decline in home values fill the media until I'm running out of Kleenex. Not. What a crock. I can remember a time when people who sold their house and got back what they'd put into it felt like winners for having "lived for free" during those years. Nobody expected to walk away with a fat pile of profit, and unless some commercial developer wanted the property for a shopping center site, they very rarely did. Somewhere along the way, houses became commodities on a national real estate exchange, and everybody knows the risks of commodity trading, especially when you're trading in a suddenly hot, get-in-get-out commodity. If they didn't, they do now.

Joel Stein gets it right in his article I Bought an Expensive House. My Bad, Not Yours. But first some data:

Below is a table from A Look at Case-Shiller Numbers, by Metro Area showing the value of a typical home in each of 20 metro areas as of a couple of months ago (Dec 2008), compared with that value back in January of 2000. The January 2000 value is indexed at 100, so if the Dec 2008 figure is 153 (Boston), it means that the typical home appreciated by 53% in those eight years. That's an average appreciation of a little less than 6% per year, compounded, and this is after and including all the catastrophic declines in home values we've been hearing about. Home owners in LA, NYC, and Wash DC have done substantially better than that, while only homes in Detroit have actually lost value since 2000.

What this means is that with few exceptions the people who have seen their home values drop are people who bought at or near the height of the housing bubble. So what have we discovered? We've discovered that highly leveraged buying near the top of a valuation bubble is a very risky investment strategy. Whoa! Hold the presses!

(I've got some stocks and mutual funds that are under water, so I think the rest of you taxpayers should bail me out. We're all in this together, right? Of course if we all bail each other out, it's like taking in each other's laundry. But fortunately we can solve that problem by borrowing the bail-out money from the Chinese and having our kids and grandkids pay it back, with interest. That might sound like intergenerational theft, but, see, they can just roll it over onto their own kids and grandkids! Whoopee!)

Byron

Metro Area     December 2008
    
Atlanta        113.87
Boston         153.05
Charlotte      122.41
Chicago        137.16
Cleveland      105.21
Dallas         115.63
Denver         125.74
Detroit         80.93
Las Vegas      131.40
Los Angeles    171.46
Miami          165.01
Minneapolis    127.00
New York       183.50
Phoenix        123.93
Portland       158.50
San Diego      152.16
San Francisco  130.12
Seattle        160.19
Washington     176.34

Source: Standard & Poor’s and FiservData

Bail-out protests

The so-called New Tea Party protests seem to be spreading, at least for the moment, with demonstrations occurring or planned in cities around the country. Reporter Rick Santelli has become famous overnight for his outburst on CNBC, asking who wants to pay his neighbor's mortgage when the neighbor lives in a bigger house than you do? Renters want to know why, as their tax money goes to help in-trouble homeowners keep homes they couldn't afford, those who rent get no help at all. People who live in some cold, grimy factory town in the upper Midwest wonder why they should be asked to bail out the irresponsible profligate spenders enjoying the sunshine in California, Florida, or Arizona. Others ask by what right those who were irresponsible in this generation should be allowed to saddle everyone's children and grandchildren with a massive overburden of debt.

Some are thinking of specific protest actions of other, quieter sorts, such as starving the beast by investing only in municipal bonds, so as to minimize or eliminate taxable income. Or this sort of thing, which appeared in the Comments of a website:

"You want to make a protest that is more than symbolic? Want to send a message that goes straight to the heart of what pisses us all off about this bailout?

"Start making all of your mortgage payments 15 days late. Federal law imposes a grace period of 15 days, and forbids the imposition of late fees or credit reporting on late payments that are made within the grace period. There is no penalty, but if 1 million people did this with an average $1000 mortgage payment, that is like pulling a billion dollars out of the system.

"To really twist the knife, withdraw permanently $1000 from your checking, savings, or brokerage account. Keep it at home in cash, or buy an ounce of gold with it and hold on to that. Now those "late" mortgage payments are not offset by the cash sitting in an account, they are pulled out of the system altogether.

"That will not be ignored. Its your money they are screwing with, let them know how it feels when enough people decide to take their ball and go home."

Cutting off your nose to spite your face? Probably. But Obama's refrain that "we're all in this together" is not going to cut it with people who played by the rules and did nothing to contribute to this mess, and who now see others who gamed the system being rewarded at their expense. "We're all in it together" appeals to the principle of equality, but the idea that equality is synonymous with justice is badly mistaken. Equality that is not earned is unjust. What is at issue here, contrary to Obama's pieties, is not equality; what's at issue is equity.

The principle of equity -- that a person's outcomes should be proportional to his inputs -- is very deeply and widely held, including by people who have no good idea how to state it with any precision, but who feel it nevertheless. It's why socialist experiments fail, as the energetic and productive find themselves earning no more than the slackers, and so to achieve equity slacken their own efforts. Inequity is felt at a visceral level; the person who benefits from it feels it as guilt, while the exploited person feels it as anger. The principle of equity lies behind every notion of justice and fairness from an-eye-for-an-eye forward, and it is the ethical ground that informs and conditions public debates across the spectrum, from executive compensation to welfare fraud to capital punishment.

The sense of justice is about as elemental and primal as it gets, and so are the emotions that injustice evokes. What will be the predominant public reaction to a GM-UAW bailout, satisfaction and relief, or anger and outrage? My money goes on the latter. The market delivers a kind of rough justice, but Obama and his team are out to make sure that doesn't happen. They are playing with fire, I think, and my guess is that all hopes about overcoming public resistance with soaring rhetorical appeals are already DOA. People know injustice when they see it; they feel it in their bones, and they will not be talked out of it.

Byron